Blog NEDs and financial resilience: making you stronger

The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

As they're not company employees, non-executive directors(NEDs) can be invaluable when evaluating decisions and engaging in planning, policymaking and other strategic tasks.

Financial resilience is a core concern for any business, especially in volatile times. NEDs can make significant contributions to a company and improve its resilience thanks to their unique perspectives and individual skills. Below are some of the essential qualities to look for in an NED, with an emphasis on their contributions to risk management and financial oversight.

Market and industry knowledge

It's vital to appoint NEDs with a strong understanding of your industry, markets and finances. These are all significant factors in a business's financial resilience and innovation ability. The best NEDs will be able to identify social, market and economic trends, risks and opportunities and have ideas on how best to exploit or mitigate them.

Risk management

Effective risk management is criticalfor financial resilience. Look for NEDs who can play a role in overseeing your risk management framework and understand your risk register. Beyond identifying risks, NEDs should also be able to assist in creating mitigation and remediation strategies. Taking and managing risk is core to any business; NEDs who can contribute to these are invaluable.

Financial oversight

Clear-eyed financial oversight is another critical tool for building financial resilience. Ideally, all your NEDs should be financially literate. At a minimum, they should be able to understand and analyse financial statements and forecasts. Strong financial oversighthelps you progress towards your strategic goals and allocate resources wisely.

Innovation

Innovation is the cornerstone of success. It requires 'out of the box' thinking and NEDs' outside perspectives are ideal for fostering an innovation culture. Prudent support for experiments, new initiatives and fresh approaches can keep a company culture vibrant and provide fertile ground for long-term value creation - all excellent hedges against financial shocks.

Digital transformation

Technological change continues to accelerate. NEDs must be able to grasp how rapid change can impact your business model, competitive landscape and market opportunities. Striking the right balance between the tried-and-true and the cutting-edge is difficult, but it requires board members who can grasp both.

Diversity

Diverse boards are good for business. In this context, 'diversity' includes diversity of experience, employment and industry background, education and origin. An NED who can bring fresh cultural, social, political, economic, industry and other perspectives to their board will provide a broader range of potential responses to any situation and improve strategic and tactical decision-making.

Stakeholder engagement

Look for NEDs with broad networks and good 'soft' or social skills. Stakeholder engagement - including communications with shareholders, customers, business partners, regulators, governments and community organisations - is critical to business success. NEDs who can understand stakeholder perspectives and communicate effectively with them will help you navigate otherwise tricky situations and build trust and credibility with those groups.

Keeping the above principles and practices in mind will enable your NEDs to promote financial resilience and innovation. These will help drive sustainable, long-term growth and value creation.

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